The decision by the UK to exit from the EU has sent many markets across Europe into a tailspin – but Poland’s real estate market stands out as a strong growth avenue for investors.
“We believe our upcoming listing on the JSE comes at the perfect time as many local investors seek to diversify by gaining exposure to offshore property. We believe Poland’s strong domestic economy will continue to drive development and growth potential for investors,” says Hadley Dean, CEO of EPP.
He says the Polish economy is expected to offer strong GDP growth, backed by a skilled labour force and sophisticated banking system, with infrastructure development continuing to cement a firm foundation for jobs and economic expansion.
Prof Marek Belka*, former Prime Minister and Finance Minister and until recently the President of the Polish Central Bank, says a June forecast by the Organisation for Economic Co-operation and Development (OECD) holds that Polish GDP could increase from around 3% in 2016 to 3.5% in 2017 – which is up from only 1.3% in 2013.
He says the increase in economic activity and infrastructure development will continue to drive prospects in the real estate market, and particularly in the retail sector.
“Economic activity in Poland continues to expand. Rising employment and wages, higher social transfers and low energy prices are expected to support faster consumption growth, which in turn drives the growth potential of the retail property market,” he says.
“Retail sales in Poland are growing at around 5.5% in 2016, while they have actually averaged 7.20% from 2001 until 2016,” he says.
Dean says 25 international brands entered the Polish market for the first time last year, while those already in Warsaw looked to expand their footprints.
“We saw brands like Jacadi and Dairy Queen enter our market in 2015, while expansion outside of Warsaw took place by the likes of Sportisimo and Esprit Bodywear. These are all good portents for the growth potential of the sector, as is the fact that vacancy rates remained flat at just under 3% for the eight largest Polish cities,” says Dean.
While a vote for Brexit, a slowdown in China and other emerging markets and weaker global trade could affect exports, Poland’s real estate market is one of the sectors on the rise.
“Office space in Poland, for example, is almost 60% cheaper than in London, and international banks are already using Brexit to reason to accelerate their take up by snapping up this cheaper space" says Dean.
Currently, EPP owns 6 office and 10 retail properties with a gross leasable area (GLA) totalling 446,400 square metres. The buildings are located in major cities across Poland, and were all built by Echo Investments, the biggest real estate developer in Poland and one of the key shareholders of EPP.
EPP has a 25% development profit participation in and has also secured the right of first offer from Echo Investments to purchase another 7 properties (known as ROFO projects) with a total GLA of approximately 200,000 square metres. The ROFO projects are at various stages of construction and are set to be completed between 2016 and 2018.
In addition to organic growth of its property portfolio, EPP has significant growth opportunities embedded by virtue of the extensions, reduction in vacancy rates and arrangements regarding the ROFO projects.
The value of EPP’s initial portfolio as at 30 June 2016 was EUR 1.2 billion, with retail properties comprising 77% of the initial portfolio by market value.
The dual listings on the JSE and in Luxembourg are anticipated to provide EPP, in which South Africa’s Redefine Properties (JSE: RDF) holds a strategic 49.9% investment, with significantly improved access to expansionary capital.
“When combined with these dual listings, the pipeline of opportunities for our fund remains extremely exciting as they are earnings accretive. This is why the fund has the potential to double in size in coming years from now,” concludes Dean.
Further information on the capital raise and placement of shares to be undertaken by EPP to coincide with its listing on the JSE will be available during an investor roadshow in August. The opening date of the private placement is expected at the end of August and the closing date of the private placement in early September. The listing is then expected by mid-September, subject to final approvals.